Friday, September 23, 2011

Krugman, current account, crisis

Paul Krugman posts an interesting take on the Euro crisis, with some data on average current account balances and average fiscal imbalances.

I like the table, but check out the relationship between the fiscal balance and the current account balance.  A scatterplot reveals an upward sloping relationship with a slope of 1.4 (t of 2.7) and an R2 of 0.4.  Surely not ironclad but suggestive that the story we tell college students about the U.S., that public dissaving produces a trade deficit, other things equal, might also be relevant here.  Even if ultimately it's the current account that actually produces a crisis, the budget deficit might be a pretty important cause.